Rising Commodity Costs Causing New Turmoil By The Mining Sector

Rising Commodity Costs Causing New Turmoil By The Mining Sector

Good occasions within the mining sector, eh? The Gold and Silver Index (XAU) is holding steady above one hundred twenty, having reached a high above 156 in January, a stage it had not seen since September 18, 1987. The spot uranium worth is higher than it has been since January 1980. Crude oil? Filling up your gasoline tank ought to remind you that oil prices are still painfully high. So all of this must mean mining companies are thrilled with their good fortune? Fallacious! There’s a snowballing crisis within the mining sector, which has been kept off the standard investor’s radar screen. This new emergency might drive commodity costs to even increased ranges over the approaching months, and possibly till the top of the decade.

The two-decade lengthy bear market drove many geologists, and other certified technicians, out of the mining sector. Drilling firms went bankrupt. Even with the latest explosion of exercise within the mining sector, exploration in the sector is less than one-third of its peak in 1981, when more than 5,500 drill rigs have been working.

The mining sector’s labor and drill rig shortage has gone past the “we’re in a disaster” stage. With out qualified geological staff and drill rigs for exploration and development applications, firms might fail to get their initiatives on-line quick sufficient to fulfill the worldwide demand for their metals, whether or not it is gold, silver, copper, or uranium. The Baker Hughes North American rotary rig count is an efficient barometer of how strongly the commodities increase has impacted the sector. In 1999, the U.S. and Canadian drill rig rely reached its nadir of 488. On March seventeenth, the quantity stood at 1546 and climbing. Over the past seven years, the rely jumped 316 p.c. Compared to a yr ago, the North American Rotary Rig Depend is up by almost 20 p.c. Internationally, the identical rig count rose nearly 60 %.

Through the course of our three-month investigation, we discovered the labor and equipment scarcity applied not only to uranium but also to coal, oil and fuel, coal bed methane and precious metals exploration. Ed Calvert, who runs Nucor Drilling Inc in Wyoming, exclaimed, “There just are not any rigs available in the U.S. You could discover one, but it is an issue finding the best rig at the suitable time.” His company began trying to find a drill rig in September for drilling scheduled to commence June 1st. Calvert explained that the big oil companies had signed up rig contracts so they would not get caught quick, including, “Whether or not the rigs are being used day by day or not, they’re paying the fees to carry them.”

Vancouver-based mostly Max Sources introduced in early January of this year they’d received permits to drill on their Thomas Mountain uranium prospect in Utah. They hoped to drill in late January, depending upon drill rig availability. We interviewed the company’s uranium geologist Clancy Wendt, who complained in early February, “I believed I had a rig lined up. Now we have no idea when we’ll get a rig.” Max Assets not too long ago announced it planned to start out drilling on or concerning the center of March. Norman Burmeister deliberate more properly, asserting in mid January Kilgore Minerals would drill the company’s Idaho gold property in July. However Burmeister obtained stumped in moving his uranium property’s allowing process forward, “I am nonetheless trying to find an archaeologist for my Nevada property. They simply aren’t out there.” Until he finishes that step of the allowing process, Burmeister can’t lock up a drill contractor to assist delineate his uranium prospect.

The drill rig shortage pales when compared to the frighteningly tight labor market in the mining sector. In accordance with the February 2006 Employment Situation Summary, published by the U.S. Department of Labor, “Mining continued its upward trend in February, including 5,000 jobs.” Cynthia Pomeroy, Director of Wyoming’s Department of Employment confirmed the crisis, “There is unquestionably a labor shortage.”

Matt Grant, assistant director of the Wyoming Mining Association adamantly introduced, “There are 800 direct job openings within the mining enterprise that could be stuffed as we speak.” He shortly famous another 2400 oblique jobs to service the mining business stay empty, begging for our bodies to satisfy these positions. Beginning geologists make between $35,000 and $50,000 yearly. High geologists command $200,000 and better. Mining consultants get $800-a thousand/day. Even day helpers on drill rigs can charge $22/hour or extra. Wyoming state and county growth associations have attended job fairs in Michigan earnestly trying to fill the rising job vacancy by recruiting laid-off auto employees.

David Michaud, president of TheJobPit.com, finds jobs for geologists, metallurgists and others in the mining sector. A mining engineer and consulting metallurgist, having graduated from Queens College in Kingston, Ontario, and till just lately the operations supervisor for Corriente Assets in Ecuador, he began his web employment agency for the mining sector because the demand was overwhelming. “Headhunters who’ve been round for twenty years say they’ve by no means seen a market like this,” Michaud stressed. “For the final ten years, the mining trade fed mining graduates to the wolves. Now they need them. All are busy with no takers to those far away places.” Michaud lambasted the mining companies for his or her lack of foresight, “Mining corporations have to count on the demand for professionals, similar to manufacturing geologists, will go up with the worth of metals. There have been no jobs for the previous eight years.” He added, “It takes two to 5 years to practice them.”

For instance, Michaud is desperately attempting to fill a South American mining firm’s job opening for an skilled metallurgist. “Free housing, two automobiles, four weeks off annually, two airplane tickets, principally no dwelling expenses, and a salary beginning at US$150, 000,” Michaud sadly defined as a result of nobody has jumped on the offer. “In the field of metallurgy, together with mill managers, metallurgical engineers, techs and operators, about one hundred fifty new jobs are offered each month.” Only about one-half can be filled. Michaud warned the copper mining companies have been in particularly dire straits to fill new job openings.

Uranium Sector Struggling to maintain with Demand

The U.S. Energy Info Administration introduced in its most lately revealed annual report, “The U.S. uranium manufacturing industry initiated a turnaround in 2004. All U.S. uranium drilling, mining, manufacturing, and employment actions increased for the primary time since 1998. Extra firms performed exploration and growth drilling than within the prior 2 years. Employment within the U.S. uranium manufacturing industry totaled 420 person-years, a rise of 31 % from the 2003 complete. Wyoming accounted for 33 p.c of the overall 2004 employment, whereas Colorado and Texas employment almost tripled since 2003. Total, $86.9 million went to drilling, production, land, exploration, reclamation and restoration activities in 2004.” And that was in 2004. Think about what the employment snapshot appears like at present?

Whereas the spot uranium worth continues rising, exploration firms could find it more durable to recruit veteran uranium geologists, to signal contracts for drill rigs, and to function those rigs. Nucor’s Calvert laughed, “Finding and keeping staff is definitely an issue.” Michaud defined, “Finding a metallurgist is tough sufficient. Finding one with uranium expertise is almost inconceivable.” David Miller, president of Strathmore Minerals, lamented, “Expertise in the uranium industry began with geologists who made discoveries within the late 1940s by the late 1970s. They trained the following era, which coincided with the 1970s uranium increase. That increase was brief lived and fizzled out by 1981. A very small quantity of professionals continued in the uranium trade, throughout the twenty-year bear market. Now that the variety of uranium companies has skyrocketed to greater than 420, there’s a probably catastrophic shortage of uranium experience.” The generation hole has come to haunt the business.

What’s the solution? Many, similar to Michaud, imagine, “Retired child boomers are coming out of retirement to fill the generational gap and experience their last metallic rush into the sunset.”Bloomberg News ran a narrative on December 8th discussing developments within the oil sector, “U.S. producers and contractors similar to Ryder Scott, which assesses drilling projects and oil and pure-gas reserves, are working more durable to maintain their oldest employees and recruit school graduates because there aren’t enough new engineers to go round. Engineers who help discover petroleum deposits are in demand…”

UR-Power Chief Executive William Boberg showed off the corporate’s latest rent, Dawn Schippe, throughout our tour of his workplaces, “She’s an engineering graduate of the Colorado Faculty of Mines,” he stated. “Her expertise in uranium is now two weeks.” Others in his firm have decades of uranium experience, but are 3 times Dawn’s age.

Aging talent has found its manner back into the uranium sector. Aging geologists akin to Dr. Boen Tan, who helped discover two of the key Lake uranium deposits in Canada’s uranium-wealthy Athabasca Basin in the early 1970s, is now helping Forum Improvement discover for brand new uranium deposits at its Costigan Lake, Key Lake Street and Maurice Level projects in Athabasca. Uranerz Power’s complete advisory board consists of former Uranerz professionals, including prime geologists, Dr. Franz Dahlkamp and Dr. Gerhard Ruhrmann. Respectively, they have forty five and almost 30 years experience in the sector. Strathmore Minerals geological team consists of former Pathfinder Mines workers, a subsidiary of Cogema, including board member Dieter Krewedl, President David Miller, and vice president of technical companies, John DeJoia. A few of these corporations deliver more than 200 years of expertise, collectively, to their new ventures. However with out enough new mining faculty graduates to mentor beneath them, future exploration and improvement may grow to be stalled. Michaud introduced a chilling remark, “Annually, Canadian universities produce less than 10 new metallurgical engineers.”

What the longer term Holds

What’s troubling concerning the uranium market, specifically, is that the soaring spot uranium worth exhibits no indicators of abating. The disaster comes at a time when President Bush introduced his nuclear initiative, as more U.S. utilities plan so as to add to the country’s nuclear fleet, and as China and India clamor for a reliable source of uranium to gas their aggressive nuclear energy applications. Without uranium for these reactors, the facility plants will not produce the electricity required to fulfill their demand. As an apart, uranium mining is the stage within the nuclear gasoline cycle the place the environmentalist fanatics are baring their teeth. This past November, an office supervisor at Albuquerque’s Southwest Analysis and knowledge Middle, an anti-nuclear activist group reportedly funded by Mott’s Applesauce and Ben & Jerry’s ice cream, instructed us after we went undercover, “We wish to cease the entrance end of the nuclear gas cycle, which is uranium mining.”

Do not say the warnings weren’t made properly upfront. At the World Nuclear Association (WNA) Symposium in 2004, Dr Moukhtar Dzhakishev, a Russian physicist and a former deputy minister of energy and mineral resources, presented his conclusions, “Firstly, natural uranium mining capacities can not fulfill reactor requirements. Secondly, accumulated uranium inventories will likely be exhausted sooner or later. Thirdly, the spot value does not reflect the precise issues and, on the contrary, is capable of misleading all of us concerning the urgency of investments to be made in the event of latest mining services.”

In his speech, Dr. Dzhakishev emphasised to the WNA, “Judging by these info, the conclusion is evident: sooner or later nuclear energy plants will face a pure uranium scarcity and it isn’t necessary to be a prophet to foresee this. It is obvious right this moment that the important thing to the answer of the key problems of the uranium market lies with the development of the potential of the uranium producers.”

This past August, Angela Jameson reported in the net version of The London Times, “A world scarcity of uranium could jeopardise plans to construct a new era of nuclear power stations in Britain… a recent report by the Asia Pacific Foundation of Canada said that there was prone to be a 45,000-tonne scarcity of uranium in the next decade, largely because of growing Chinese demand for the metal.”

The upward spiral of the commodities boom is racing ahead at full velocity. Depending upon whom you speak to, the labor and drill rig scarcity is both very bad or worse than you possibly can probably think about. If there are commodity stock shortages right now, what occurs by the tip of this yr, or later this decade, if current exploration efforts get grounded as a result of companies lack the trained personnel, the correct equipment and the experience to discover and/or develop their properties? You cannot run a drill rig if you can’t get your fingers on one. You can’t drill the property if you can’t discover drillers to run the rig. While commodities prices soar to levels not seen in twenty or thirty years, the tight labor and tools market could ratchet costs to much larger levels. And junior uranium growth companies, with proven pounds-in-the-ground property, ought to turn into sought-after acquisition targets by these who have the employees and drill rigs to carry the initiatives on-line.

For investors, the labor and drill rig scarcity has a silver lining. As inventories dwindle lower, commodity prices will continue rising. For junior uranium investors, this would possibly someday be realized because the “hidden purpose” why spot uranium prices continued rising past $40/pound. If you do not drill for the commodity, you cannot discover it and develop it. This strengthens the case for $50/pound uranium within the near future. Now we understand why Strathmore Minerals’ David Miller warned us in November, “I wouldn’t be shocked to see uranium prices double again. ALL RIGHTS RESERVED.